PwC: Media M&A Activity Slowed in 2022

Following record levels in 2021, merger and acquisition activity in the media and telco sector slowed this year but still remained above pre-pandemic levels, per PwC.

There were 3,772 deals in the last 12 months, PwC said in its Deals 2023 Outlook, a 26 percent decrease. Deal value was down 18 percent to $624 billion.

Factors that will impact deal activity in 2023 include higher interest rates, inflation, geopolitical tensions and regulatory oversight. As such, dealmakers will need to “refine their portfolio strategies and be more intentional about deal value creation,” PwC says. The media and telecoms sector may fare better than other industries, PwC adds, “as it sits at the center of many sectors’ investment patterns and growth strategies.”

PwC notes that media and telecoms companies have been moving to divest non-core assets over the last few years; divestures represented more than 30 percent of deal value in 2020 and 2021. This year, divesture deal value fell to $52 billion “as companies shifted their focus back to growing their core businesses. With that said, pressure on valuations may force companies to look at whether the sum of its parts is greater than the consolidated value of the group, giving rise to further divestitures of non-core or potentially undervalued assets and redeploying capital in areas deemed more accretive to the overall business. We’ve already seen chatter in the market addressing some of these high-profile assets.”

PwC also expects a greater focus on profitability through “more purposeful and deliberate content spend,” decreased expenditure on subscriber acquisition costs, a focus on limiting churn and the rollout of ad-based tiers.

“Over the past several years, these companies have spent a significant amount of capital on content to attract and retain subscribers, however market dynamics and investor expectations are shifting toward capital spend and capital discipline to better measure profitability,” PwC said.

Bart Spiegel, global entertainment and media deals leader and partner at PwC US, stated, “While the next several months may be challenging for certain buyers given current capital costs, the market has historically rewarded those companies that can be bold and aggressive in finding opportunistic M&A when other players remain on the sidelines. Given the pace of change in the media and telecom space, we expect well capitalized companies to continue to execute on their M&A strategy, finding accretive and opportunistic transactions to add to their portfolio.”

PwC also points to a decline in the megadeal, “as companies shifted their focus to more mid-sized deals due to higher interest rates and decreased access to capital. As we look to 2023, we expect companies will continue to seek creative structuring alternatives as buyers and sellers navigate the value gap, given changing expectations in light of rising interest rates.”